Consumers lack understanding of credit ratings

Experian says a lack of understanding around credit ratings has been exposed, with new consumer insights revealing low levels of engagement and knowledge about how credit reporting and scoring work.

The research found that nearly half of the UK public (46%) have never checked their credit report, a figure which rises to 65% among 18 to 24-year-olds, while 69% don’t know what their credit score is.

The findings reveal that awareness is heading in a positive direction. When the survey was first conducted in 2017, 55% had never checked their report and 78% did not know their score. Credit experts have attributed this increase in awareness to people taking a greater interest in their personal finances as a result of the COVID-19 pandemic.

However, there is still much to be done, with common myths about the credit industry persisting. Three quarters (75%, down from 80% in 2017) believe being put on a ‘credit blacklist’ will impact their ability to access affordable finance – despite there being no such thing.

Many people still wrongly believe credit reference agencies make decisions about whether a credit application will be accepted, when it is actually the lender who decides. Nearly a third (30%) incorrectly believe credit reference agencies decide the outcome of credit card applications, while 21% make the same incorrect assumption for loans.

Awareness about credit eligibility services remains low. Eligibility can help people find the most appropriate product for their circumstances by showing them which cards, mortgages, and loans they are likely to be accepted for without damaging their score.

Yet, the research claims 47% have never checked their eligibility, meaning they could potentially be putting their credit score at risk by often applying for products they are unlikely to qualify for. Awareness is particularly low among the younger generation, with just 7% of 25 to 34-year olds having ever checked their eligibility, compared with 15% in the 55+ age group.

However, younger people are also looking for industry assistance in building their credit scores. For example, a quarter (25%) of those aged 25- 34 believe subscription services such as Netflix and Spotify should be included in a credit report.

James Jones, Head of Consumer Affairs at Experian, said “We’ve made positive strides compared to previous years, with recent progress a likely outcome of COVID-19 encouraging more people to pay greater attention to their personal finances. However, the clear message from the findings is that there is much more to do. As an industry, it’s important we empower people with the knowledge to take control of their finances and understand how they can make their credit information work for them.”